The Economics of Antibiotic Resistance

Antibiotic resistance (ABR) is a major challenge that already contributes to almost five million deaths per year. Without action, this number will likely rise substantially. In this paper, we provide the first comprehensive assessment of the economic drivers of ABR, arguing that ABR in large part arises from extensive unresolved market (and regulatory) failures on both the supply and demand side. Each of these failures is well-understood from other contexts in economics. Specifically, ABR is a common pool problem that arises from too-rapid depletion of the stock of working antibiotics and insufficient replenishment with new antibiotics. We identify specific unresolved failures in the market for antibiotic innovation, in pricing structures that undermine its insurance function and in the production of known antibiotics on the supply side. We also identify failures on the demand side, including an underinvestment in preventative action, mismatch problems in the market for human antibiotic use and un-internalised negative externalities in pharmaceutical production and agriculture. We conclude by briefly considering how to resolve these market failures.

From the paper:

Antibiotic resistance is a global public “bad”—something that affects all countries (though its costs may vary by country). Understanding both why ABR arises and why existing public policy responses have so far been ineffective in combating it is of first-order importance. This paper is a comprehensive treatment of the economics underlying the problem of ABR, specifically focusing on the market failures that lead to ABR and that make collective action to address ABR more difficult, as well as drawing on the economics literature on these problems to propose effective solutions.

The burden of ABR falls particularly heavily on low- and middle-income countries, where a much higher percentage of deaths comes from resistance, and where the demographic of people dying is far younger, losing more of their lives due to resistance. Addressing ABR thus has both direct development benefits in poorer countries and global public good characteristics.

This paper proceeds as follows. First, we provide a general overview of the problem of antibiotic resistance. We then consider the market (and regulatory) failures on the supply and demand side in the market for antibiotics that lead to the problem of ABR. We end by examining proposed solutions to the problems we have identified. In the appendix we include definitions for a list of useful medical and economic terms that might help some readers better understand the concepts discussed in this paper.

Read the full paper here.

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